Fitch: Pakistan Construction Industry to Grow 8.9% Yearly Over Next 5 Years

Fitch Solutions, a global company focused on credit, economic, and political research, says in its latest report that theChina-Pakistan Economic Corridor (CPEC) will drive Pakistan's construction industry in the next decade, as the risks associated with CPEC projects recede. Fitch forecasts that the real annual growth rate of Pakistan's construction industry will average 8.9% over the next 5 years. "We will adjust our forecasts to account for possible positive ripple effects across the economy, including the construction industry, in the event an IMF bailout is secured", the report adds.

The Fitch report acknowledges the completion of eleven CPEC projects termed "early harvest". It says that despite major media and political scrutiny regarding CPEC, this progress on projects highlights Beijing’s improving track record in project execution and its commitment toinfrastructure developmentin Pakistan. As a result of CPEC progress, a total of 3,240MW of capacity has been added to the country’s national grid, constituting over 11% of total installed capacity in Pakistan. Also highlighted in the report is the 392 kilometer Multan to Sukkur section of the Peshawar-Karachi motorway, a key CPEC project which is over 80% complete and is slated to finish by August this year.

Fitch believes political risks associated with CPEC projects have diminished. "Previously, we noted that the transition in power from Pakistan Muslim League (Nawaz) to Pakistan Tehreek-e-Insaf (PTI) posed a downside risk to the Pakistani construction industry as new Prime Minister Imran Khan pledged to review Chinese-backed projects, which could potentially have led to project delays and cancellations. However, the political situation in Pakistan has since stabilized and Prime Minister Imran Khan has demonstrated willingness to cooperate with China on multiple issues including CPEC. As such, we are in the view that downside risks stemming from political uncertainty are diminishing, and bilateral projects spearheaded by CPEC, will receive a boost in terms of policy implementation and project continuity," maintained the report.

In another recent report, Fitch's competitorMoody'shas acknowledged that rermittances from Pakistan diaspora rose by 10% year on year to $10.71 billion in the first half of fiscal 2019, while goods imports slowed sharply to around 3% year on year as non-energy imports contracted.

Moody's expects "the current-account deficit to narrow to 4.7% of GDP in fiscal 2019 and to 4.2% in fiscal 2020 from 6.1% in fiscal 2018, it will remain sizable and wider than in 2013-16, driving Pakistan’s external financing needs. The government has secured $12 billion in financing from Saudi Arabia and the United Arab Emirates – in each case amounting to $6 billion and divided equally between deposits and deferred oil payments – which is likely to largely cover the country’s net financing needs for fiscal 2019".

Construction industry is a major driver of economies. The sector creates new jobs, builds housing and infrastructure, drives economic growth, and provides solutions to address social, climate and energy challenges, according to theWorld Economic Forum. The construction industry has important linkages with other sectors such ascement, steel, energy, furniture, household appliances, etc. The construction industry's impact on GDP and economic development goes well beyond the direct contribution of construction activities.

Clad in blue overalls, 1,600 Chinese supervisors, technicians and other laborers work at the 2,000-acre site. The $1.7 billion factory, which also relies on Chinese technology, employs 5,000 Indian workers.

Skilled Chinese workers are helping India expand its infrastructure at a frenetic pace, even as the two Asian giants compete for economic dominance.

Their presence in a nation of more than a billion people with staggering unemployment may appear incongruent. But the government says Indian workers lack the technical skilled needed to transform the country into a 21st-century economic powerhouse.

Until the gap is bridged, companies are relying on the expertise of Chinese workers to build mega infrastructure projects. Chinese workers have worked on ports, highways, power and steel plants in India. Chinese equipment and expertise have also been used in a crude oil refinery, a cable-supported bridge, the telecommunication networks and even the glass facade of the new airport terminal in New Delhi.

"India may be an IT superpower and producing thousands of doctors, lawyers and MBAs every year. But the biggest gap is in the availability of skilled electricians, carpenters, welders, mechanics and masons who can build mega infrastructure projects," said Raghav Gupta, president at Technopak, a consultancy that released a report on skill development last year. "Most of these workers have to be trained on the job. And that often delays the projects and makes it more expensive."

As the center of economic gravity shifts from the Atlantic to the Indian Ocean, analysts say, the world's two fastest growing economies will transfer even more technology and skills.

Fears of displacement

The Chinese workers in labor-surplus India prompted an outcry last year, and India clamped down by making visa rules stricter. About 25,000 workers had to leave dozens of projects midway and return to China because they were on business visas and not worker visas. Construction at 14 power plants was affected.

"We have no problems if . . . Chinese workers skilled in specialized functions come to India. We just don't want them to displace Indian workers by doing the jobs that Indians can do," said G. K. Pillai, India's home secretary, who said there are a little over 15,000 Chinese laborers in India now.

Diplomatic relations between the two nations, who have fought a war and have lingering territorial disputes, have remained testy. In recent years, Indian officials have expressed concerns about China's close ties with Pakistan, India's arch rival.

------------The Chinese live in a row of air-conditioned pre-fab rooms and have Chinese cooks. Some say they find the Indian heat unbearable; others complain that the Internet speed is too slow for streaming Chinese movies. Sometimes, they go into the villages for an under-the-tree haircut or for the locally brewed toddy.

JPMorgan Chase & Co., CLSA and Credit Suisse Group AG are among foreign banks pitching for a role on Pakistan’s biggest privatization in over a decade, which could raise around $2 billion, people with knowledge of the matter said.

The government’s sale of two LNG-fired power plants could draw interest from Chinese and Middle Eastern investors, one of the people said, asking not to be identified because the information is private. Pakistan received about 10 bids from groups seeking a financial advisory role and expects to pick banks by the end of March, another person said.

Citigroup Inc. and Standard Chartered Plc made their own separate proposals, while Lazard Ltd. is pitching with Pakistani brokerage Next Capital Ltd., the people said.

Prime Minister Imran Khan is pursuing a divestment that would rank as one of the biggest-ever mergers and acquisitions in Pakistan, as he seeks to bridge a financing gap of more than $12 billion and avoid a balance-of-payments crisis. The nation has secured loans from Saudi Arabia and the United Arab Emirates and is close to a loan agreement with the International Monetary Fund.

Privatization PushPakistan is selling National Power Parks Management Co., the state-owned firm that owns and runs the 1,230-megawatt Haveli Bahadur Shah plant and the 1,223-megawatt Balloki plant. Both plants started operations in the past two years. The government has said it aims to complete the privatization of the power assets in the financial year ending June 30.

The sale would rank as Pakistan’s largest privatization since 2006, when Emirates Telecommunications Group Co. bought a $2.6 billion stake in Pakistan Telecommunication Co. in the country’s biggest-ever M&A transaction, data compiled by Bloomberg show. The power plant divestment is set to become Pakistan’s largest privatization in the energy sector, according to government figures dating back to 1991.

Pak Brunei Investment Co. is also pitching for a role on the power plant divestments in a group with Zeeruk International Pvt, the people said. BMA Capital Management Ltd. and CPCS Transcom Ltd. have submitted a joint proposal, according to Salman Virani, head of investment banking at BMA Capital.

Habib Bank Ltd. and China International Capital Corp. are partnering with JPMorgan, a representative for Habib Bank said in response to Bloomberg queries. CLSA submitted a joint proposal with Bank Alfalah Ltd. and their local brokerage venture, while Credit Suisse is pitching together with Pakistan’s Elixir Securities Ltd., the people said.

A representative for the Pakistan’s Privatisation Commission said the government has no comment. Representatives for CICC, Citigroup, CLSA, Credit Suisse, JPMorgan, Standard Chartered, Elixir Securities and Next Capital also declined to comment. Representatives for Lazard, Bank Alfalah, Pak Brunei and Zeeruk didn’t immediately respond to queries.

Comment

You need to be a member of PakAlumni Worldwide: The Global Social Network to add comments!

Sponsored Links

Please Bookmark This Page!

Blog Posts

The Organization of Pakistani-American Entrepreneurs (OPEN) hosted a dinner on Wednesday Feb 20, 2019, for young tech entrepreneurs from Pakistan who came this year toSilicon Valleyto attend StartUp Grind Global Conference. About 50 people, including 20 from Pakistan, attended the event.…

Last Saturday, Pakistani-American community joined Javed Ellahie and Sabina Zafar in celebrating their recent election victories in city council elections in San Francisco Bay Area which includesSilicon Valley. Ellahie has been elected to Monte Sereno City Council while Sabina Zafar won a seat on San Ramon City Council in November 2018 elections. The event was organized by American Pakistani Political Action…